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A Bipartisan Way to Help Small-Business Retirement Plans

Congress is running out of time to act on open multiple-employer plans

Aron Szapiro 


A long-simmering idea has been popping up again in Congress and might even become law. Of course, we’ve said that before—and as we enter election season, there will be fewer and fewer opportunities for lawmakers to make it happen.

The legislation would allow small employers to band together when they offer a retirement plan, a concept known as open multiple-employer retirement plans. These plans are not a panacea. But as we’ve pointed out, small employers are overwhelmed by the big responsibilities that come with offering retirement plans.

Why small-business retirement plans need help

While the U.S. defined-contribution system works well for workers at larger employers, workers at small employers can expect very different retirement savings opportunities:

  • Fewer than half of small employers (those with 50 or fewer workers) offer a retirement plan. The Census Bureau estimates that just 18 percent of small employers offer a plan, but the Bureau of Labor statistics estimates that 48 percent offer a plan.
  • When small-business retirement plans exist, the plans are much more expensive than those offered by large employers. Small employers don’t have the economies of scale that large employers enjoy. As a result, their fees average closer to 142 basis points, rather than 37.

This means that even workers at small employers lucky enough to have a retirement plan will enjoy worse retirement security. The gap in plan fees between large and small plans can make a big difference in savings over time, with investors in small plans about 20% worse off in retirement because of differences in investment fees. In our paper, we show how that can mean big differences in total savings at retirement.

Open multiple-employer plans are a popular idea, but haven’t been a priority

Multiple-employer plans could help small businesses improve the quality of their retirement plans. With a multiple-employer plan, several small employers can band together to offer their employees access to a 401(k). These plans benefit both the employer and employee. They spare smaller firms from shouldering all the administrative costs associated with setting up and maintaining a 401(k). And they allow employees to enjoy access to a retirement plan that they otherwise might not have had, along with the benefits of lower fees found in larger plans.

Right now, it’s pretty hard for “unrelated” employers to join forces, but bills dating back to 2016 would have made it easier.

More recently, Sens. Orrin Hatch of Utah and Ron Wyden of Oregon (the top Republican and Democrat, respectively, on the Senate Finance Committee) reintroduced a bill that would create a structure for “open” multiple-employer plans. House Republicans have also floated putting such a measure in another tax cut bill.

Still, the bottom line is that if this were a congressional priority, it would be done. Everyone likes the idea, but no one loves it.

Could multiple-employer plans get overtaken by auto-401(k) or auto-IRA?

If Congress doesn’t act soon, the proposal for open multiple-employer plans could get overtaken by another idea that’s aimed at helping workers at small businesses access retirement savings. The idea involves some form of a soft mandate where workers are automatically enrolled in a savings plan if they do not have one at work. (Workers could opt out if they so choose.) Sen. Jeff Merkley, D-Ore., and Rep. Richard Neal, D-Mass., have introduced plans that have such mandates, with different details. And states such as Oregon and California are moving full steam ahead on their “auto-IRA” plans.

Sooner or later, policymakers will have to address imbalance between retirement options at large and small employers, and that means delinking employers from retirement security or making it easier for them to offer plans.

Learn more about the small-business retirement-plan problem in the U.S. from our paper “Small Employers, Big Responsibilities."

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